US manufacturing productivity has been on a downward trajectory for nearly two decades, but Goldman Sachs analysts believe artificial intelligence—not tariffs—represents the most viable solution to reverse this trend.
Goldman Sachs analysts argue that tariffs will not sufficiently lower supply chain and labor costs to boost reshoring. Instead, they suggest increased automation will be the most likely driver of manufacturing productivity growth. The US should look to AI and automation to gain an edge in manufacturing, as advancements in technology could provide a two-fold benefit for domestic manufacturing productivity—both by driving factory investments and improving technology for factory automation.
"A pickup in the pace of innovation—potentially from recent advances in robotics and generative AI—therefore remains the catalyst most likely to reverse the long-run stagnation in manufacturing productivity," stated Goldman Sachs analyst Joseph Briggs and colleagues in their report. This comes as evidence of a US manufacturing slowdown mounts, including US Census Bureau data showing new orders for manufactured durable goods decreasing 6.3% in April, while the Institute of Supply Management Manufacturing Purchasing Managers' Index has fallen since March, indicating contraction.
The productivity challenges are part of a broader manufacturing slowdown occurring over the past two decades, resulting from investment pullback following the global financial crisis and a deceleration in technological advancements that characterized the early 2000s.
The US has fallen behind other manufacturing powerhouses in implementing AI into factory operations. According to a recent Boston Consulting Group Henderson Institute report, only 46% of US manufacturers reported multiple use cases of AI in their plants, significantly below the global average of 62% and far behind China's 77%. "This is one of the key technologies that I think could drive productivity growth in a cost-competitive manner," Briggs told Fortune.
Despite the potential, analysts remain cautious about predicting a complete reversal of the manufacturing slowdown. "We just need to see it happen before we have a lot of confidence in that dynamic being a big driver," Briggs noted. Goldman Sachs analysts conceded that while automation provides the largest opportunity for growth in US manufacturing productivity, it is unlikely to solve the broader manufacturing slowdown, which is global and "historically unusual." Any hope for a global uptick in productivity would require mass advancement and adoption of AI and robotics on a large scale. "The main thing that would drive a large pickup in manufacturing productivity and manufacturing growth would be a sharp increase in the pace of innovation," Briggs explained, adding that "this type of inflection upwards and technological progress are very hard to predict."
By 2025, the AI in manufacturing market is projected to reach $8.57 billion, up from $5.94 billion in 2024, reflecting a compound annual growth rate of 44.2%. AI is expected to boost productivity by 40% by 2035, transforming business operations through automation of critical tasks, defect detection, and quality control enhancements, ultimately creating smarter and more efficient manufacturing processes.